Attention “Bounce Back” Buyers!

Author: Kaitlyn Walsh

Buying a home after foreclosure just got easier…Well, maybe not easier, but faster. More than 4 million US homes have been lost to foreclosure in the past five years, and left many homeowners on the sidelines of the housing market- waiting for up to 7 years to be eligible for a mortgage again. But a new rule change will give foreclosure victims a second chance at homebuying- much sooner than before.
According to Nick Timiraos at the Wall Street Journal:

A recent rule change lets certain borrowers who have gone through a foreclosure, bankruptcy or other adverse event—but who have repaired their credit—become eligible to receive a new mortgage backed by the Federal Housing Administration after waiting as little as one year. Previously, they had to wait at least three years before they could qualify for a new government-backed loan.

To be eligible for the new FHA loans, borrowers must show that their foreclosure or bankruptcy was caused by a job loss or reduction in income that was beyond their control. Borrowers also must prove their incomes have had a “full recovery” and complete housing counseling before getting a new mortgage.”

The Department of Housing and Urban Development altered Federal Housing Administration mortgage guidelines earlier this month. With so many homeowners impacted by foreclosure and bankruptcy in recent years, this rule change is a breakthrough for many aspiring homebuyers. Usually, affected borrowers would have a “time-out” period of sorts. As written by Maryann Haggerty of the NY Times:

“Fannie Mae, Freddie Mac and the Federal Housing Administration set guidelines for how long a borrower must wait after a “significant derogatory event.”
There are plenty of asterisks and conditions. But to generalize, the wait is longest after a foreclosure. Extenuating circumstances like a job loss, illness or divorce reduce the wait.

With such circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.

“The key is to avoid the foreclosure,” said Andrew Wilson, a spokesman for Fannie Mae. “That is what will help you be eligible for the shorter period.”

As for F.H.A.-insured loans, they are available three years after a foreclosure, assuming perfect credit afterward, and two years after a bankruptcy is discharged. After a short sale, there’s a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances.”

With this newly adopted change to FHA mortgage guidelines, those “time-out” periods can now be up to one year shorter. With the housing market picking up and home values on the rise, now is the perfect time to get up from the housing sidelines and become a homeowner again!


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© 2017 Denise Walsh, Realtor licensed in the state of Connecticut · Last modified: 25 October 2013 · Log in · IDX · real estate web: darrylo